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When It’s Going Well, Start Worrying

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Remember all those dire warnings about the risk of a stock market correction in September, the cruellest month in the financial calendar? We are not quite through it yet, but with four more trading days to go, the FTSE 100 is up another 4 per cent. So much for history.

Not that having escaped the correction in September means we will do so in October — another month which will live in infamy for investors. On the contrary, the risks look considerably higher.

In the latest unnerving sign, even the bulls at Barclays Capital are getting more cautious. BarCap has been urging investors to fill their boots since the market bottomed in March. It has been much more optimistic about the chances of a V-shaped global economic recovery than most forecasters and has been largely vindicated.


Unlike in the US, Europe and Japan, headline inflation has remained positive in the UK and some economists expect the Bank of England to start increasing official interest rates as early as the first quarter of next year.

Spencer Dale, the Bank’s chief economist, warned yesterday that the Bank’s policy of injecting new money into the economy through “quantitative easing†could cause asset price bubbles that would be costly to rectify. This added to the impression given by the minutes of the last Monetary Policy Committee meeting that QE is less likely to be extended in November.

Investors are also beginning to focus on the inevitable steep cuts in public spending after the election on top of the tax increase already in the pipeline for next year.

So is it time for investors to take some money off the table? Mr Kantor’s answer is “not quite yetâ€.

The more nervous will remember how quickly that can become “oops, too lateâ€.

Increasing taxes and interest rates can only lead to more consumer spending and increased demand for services.

Share prices can only go up.

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